Drought still hurting Brazilian distributors, says Moody's

Brazilian electricity distributors will continue to suffer the financial effects of drought despite recent tariff hikes, Moody's Investors Service said on Thursday.

Local power regulator Aneel implemented an automatic increase mechanism in January followed by additional price rises in February.

The move came as distributors were forced to purchase costly spot market electricity from backup thermoelectric plants due to lower hydro output.

Moody's said Aneel had "alleviated some of the stress" without solving the problem.

"The impact of costs associated with the drought not being fully covered by the tariffs is evident," Moody's senior analyst José Soares said.

Moody's predicted operating costs would continue to climb amid maturing debt and high working capital needs, further impacting liquidity positions.

"Given the pace of the cost increases associated with the drought, tariff increases have been granted with a time lag, which has put additional pressure on the distribution companies," Soares added.